COMMUNICATION FROM THE COMMISSION TO THE COUNCIL, THE EUROPEAN PARLIAMENT, THE ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS - BENCHMARKING - IMPLEMENTATION OF AN INSTRUMENT AVAILABLE TO ECONOMIC ACTORS AND PUBLIC AUTHORITIES
Date: 1997-04-16
Institutions: European Commission
Subjects: European industrial area, competitiveness, economic analysis, productivity, statistics

COMMISSION  OF THE EUROPEAN  COMMUNITIES 

Brussels,  16.04.1997 
COM(97)  153 final 

COMMUNICATION  FROM  THE COMMISSION 

TO THE COUNCIL,  THE EUROPEAN  PARLIAMENI 
THE  ECONOMIC  AND SOCIAL  COMMITTEE 
AND THE COMMITTEE  OF THE REGIONS 

BENCHMARKING 

IMPLEMENTATION  OF AN INSTRUMENT 

AVAILABLE TO 

ECONOMIC ACTORS AND PUBLIC AUTHORITIES 

Table of Contents 

1.  BENCHMARKING:  AN INSTRUMENT  TO PROMOTE  CHANGE AND  CONTINUOUS 

IMPROVEMENT  OF EUROPE'S COMPETITIVE  PERFORMANCE 

2.  THREE LEVELS OF BENCHMARKING 

3.  A  COMMUNITY FRAMEWORK 

ANNEXE  ELIGIBLE THEMES FOR PILOT PROJECTS  ON BENCHMARKING 

2 

4 

7 

9 

1.  BENCHMARKING:  AN  INSTRUMENT  TO  PROMOTE  CHANGE  AND 
IMPROVEMENT  OF  EUROPE'S  COMPETITIVE  PER 

CONTINUOUS 
FORMANCE 

Internal  market  integration  within the Community,  the perspective  of Economic and 
Monetary  Union  as  well  as  globalisation  present  European  industry  with  the  chal 
lenge to continuously improve its competitiveness. 

In its Communication on "Benchmarking the competitiveness of European industry" 
COM (96) 463  of 9 October  1996, the Commission  identified  certain  deficiencies  in 
the performance  of the European  economy,  in particular  low growth  of total  factor 
productivity, insufficient  adaptation of economic structures towards new markets and 
new technologies and massive underutilization of the population of working age; 

These handicaps for  the European  economy are particularly  difficult  to bear because 
of the ever faster  rate of change in the world  economy, under the combined  impulse 
of globalisation  and  the  introduction  of  new  technologies,  in  particular  information 
and communication technologies. 

In order to reply to  this challenge and restore  rapid  growth  in employment  and pro 
ductivity,  Europe  needs  to  address  systematically  and  with  determination  factors 
which limit its growth potential. 

The  Commission  proposed  in  order  to  assist  this  process  to  use  benchmarking  in 
the economy and society to  compare performance  in the different  key areas and  fac 
tors that determine economic success, including, in addition to the initiatives outlined 
below,  the  development  and  use  of  benchmarking  in  support  of  the  European  em 
ployment strategy. 

-2 

A request from industry 

On  several  occasions,  industry  has  proposed  that  the  Commission  and  Member 
States use benchmarking as an instrument to optimise policies affecting  competitive 
ness. 

The  Competitiveness  Advisory  Group  recommended  extensive  recourse  to  bench 
marking of framework  conditions, in particular those relating to public  infrastructure, 
the labour market and internationalisation of the European  economy. 

In  its  report  on  "Benchmarking for  policy-makers  -  Tne way  to competitiveness, 
growth and job  creation"  (October  1996). the Round  Table of European  Industrial 
ists (ERT)  drew  the  Council  and  Commission's  attention  to  the  potential  contribu 
tion  of benchmarking  for  pursuing  growth  and emp!o}'ment. The ERT  invited  more 
particularly public authorities to examine priorities for, the objectivss and methods of 
benchmarking, as well as the means of transposing results into their policies. 

An invitation  from  he Council 

In  its conclusions  on benchmarking  (14 November  1996),  the  Council  of  Ministers 
invited the Commission to present proposals on developing use cf this instrument  as 
a  means  for  improving  the  competitiveness  of  European  industry.  The  European 
Council  at its meeting in Dublin on  13 and  14 December,  1996 also considered  that 
e there should be regular monitoring and evaluation of the  Union's competitiveness 
against world best practice'*. 

An instrument for  competitiveness 

As  noted  in the  Commission's  Communication  to  the  Dublin  European  Council  on 
the  mutually  beneficial  effects  of  greater  co-ordination  of  economic  and  structural 
policies (Europe as an economic entity) CSE(96)8 final. "Competitiveness  in the EU 
and the competitiveness  of different  regions,  sectors,  companies  or  even  individuals 
can only be increased  on a lasting basis by raising the productivity of companies and 
the  people  who  work  in  them.  Competition  is  not  between  countries  but  between 
companies  -  within  and  across  borders."  Benchmarking  is  an  important  tool  in 
working  towards  these  improvements  in  competitiveness,  and  is based  on  two  ele 
ments:" 

- 

the comparison  of societal behaviour,  commercial  practice,  market  structures and 
public  institutions  across  countries,  regions,  sectors  and  enterprises  in  order  to 
identify best practice; 

-  applying reference  to  best  practice  as  an  instrument  to  identify  changes  required 
and to mobilise all actors of the economy and society to evolve in this direction. 

The Erst step requires that  all the actors concerned  accept to  question  existing prac 
tices. Benchmarking can succeed only if exposes weaknesses and  inefficiencies.  This 
is why the process can provoke resistance and increase opposition to change initially. 
Its benefits  can nevertheless be substantial: better  services for  the  individual  and  for 
enterprises,  less costs,  more  user friendly administration,  better  economic  perform 
ance,  more work,  improved  health  and  safety,  and  wealth  creation.  It  can  also  con-

tribute  to  economic  convergence  within  the  Union  by  closing  gaps  in  productivity 
and reducing economic inequality. 

The comparison  of commercial practices and of market structures requires the devel 
opment of reference indicators. To be supportive of the competitiveness of European 
industry,  this  exercise  cannot  be  associated  with  anti-competitive  practices  such  as 
exchanging  between  companies  specific  information  on  their  prices,  quantities  pro 
duced,  quantities  sold,  market  shares,  capacities  and  investments.  Any  exercise  of 
benchmarking  leading  to  the  production  of  statistical  reference  indicators  must  be 
managed  so that the companies do not have access to the individual data  concerning 
the activity of their competitors. 

The  second  step  requires  a commitment  to  undertake  the changes  required from all 
the actors involved.  This implies not  only that they be willing to  adopt best  practice 
but that the unceasing search for best practice becomes a permanent  characteristic of 
the decision making process for enterprises, institutions and public administrations. 

2.  THREE LEVELS OF BENCHMARKING 

Benchmarking can be implemented by enterprises,  at the level of sectors and that  of 
framework  conditions for  economy and  society.  Whichever  the level of implementa 
tion, this tool  serves the competitiveness  of European  industry.  It  serves to  improve 
the competitive performance  of enterprises, of industrial sectors as well as that of the 
environment in which people work, enterprises operate and society functions. 

at  enterprise level 

Benchmarking at enterprise  level is mainly a "quality" tool for  continuous improve 
ment  of  industrial  processes  and  management.  For  those  enterprises  that  have inte 
grated  quality  as  a  determining  element  for  strengthening  competitiveness,  it  is  an 
element  of global  strategy.  It  is identified  as such in the framework  of the European 
Quality Policy. 

Establish  the  processes  to  be  analysed,  identify  world-wide  best  practice  for  these 
processes,  evaluate  the gap  in  performance  compared  with  this  and  understand  tho 
reasons behind  the gap are the steps which  should  lead the  enterprise  in question  to 
perform better, improve competitiveness and thereby surpass the competition. 

Benchmarking  at  enterprise  level  is  above  all  the  responsibility  of  industry  itself. 
Public authorities  can usefully  contribute to  its promotion  amongst  a wide audience, 
in particular to  small and  medium  sized  enterprises which do  not  have the  resources 
or  the  necessary  experience  to  do  it  alone.  The  Commission  proposes  to  examine 
with all the parties concerned  the possibility  of creating a European  network  for  en 
terprise benchmarking.  Such a network  should ensure that  coherent,  trustworthy and 
equivalent  services are available,  in particular  for  SMEs,  throughout  the Union.  To 
this effect,  two  initiatives  are  in the  process  of being  sponsored  by the  Commission 
(see the following box). 

-4 

Examples of enterprise  benchmarking 

The Commission sponsors two initiatives in this area: 

-  a pilot  project  from  Forbairt  (Ireland)  to  identify  experience,  services  and  meth 
odologies developed  at the current time in Europe,  and to  prepare  an action plan 
for the creation of a European Network of enterprise benchmarking; 

-  a project  from  Eurochambres  to use the existing network  of European  Chambers 
of  Commerce  and  Industry  to  promote  awareness  programmes  about  quality  to 
SMEsv  to  encourage  them  to  apply  benchmarking  through  pilot  projects  and  to 
improve  the  conditions  for  SMEs  access  to  the  European  network  mentioned 
above. 

The UK Department  of Trade and Industry (DTI) sponsors a national  benchmarking 
system which  provides for  the exchange of statistical  information  and  the  identifica 
tion of best practice on a national level. 

- 

this  system  was built  on  an  initiative  of the London  Business  School  which  cre 
ated  a  panel  of  industrial  enterprises,  including  many  small  and  medium  sized 
ones,  and  developed  a benchmarking  model  with them  for  key  aspects  linked  to 
business management and organisation; 

-  after  demonstrating  its value and faced  with  increasing  interest  from  participants, 
including  enterprises  from  overseas,  the  experiment  received  the  backing  of  the 
Confederation  of British Industries; 

- 

the  DTI  then  decided  to  approve  and  support  the  experiment  through  public 
statements and through  the creation  of a national  network  of outlets where  enter 
prises could  access the panel. With the increase in the size of the panel,  its repre-
sentativity as a reference tool also increased. 

Some  Member  States  and  private  bodies  have  also  launched  programmes  for  the 
diffusion  of best  environmental  practice  (for  mstsnce  the  UK  Environmental  Tech 
nology Best Practice programme). 

at sectoral level 

Sectoral  benchmarking  concentrates  on specific  factors  for  the  sector  concerned: in 
this way  certain  environmental  regulations  affect  almost  exclusively  certain  sectors 
(automobile emissions, dangerous substances, etc.). 

Examples of sectoral  benchmarking 

Pilot  programmes  -  managed  jointly  by  the  Commission  and  MITI  -  for  consumer 
electronics  and  automobile  parts  and  component  suppliers  are  intended  to  improve 
the  competitive  performance  of  European  industry  compared  with  Japanese  best 
practice. 

Other  initiatives  are  being  launched  by  the  chemicals  and  automobile  industries.! 
Benchmarking  the European  chemicals  industry  comprises  the  permanent  review  of 
improvements  made to  competitiveness,  a comparison  of the  European  competitive j 

- 5-

situation  against  world-wide best practice  and the implementation  of actions to help 
convergence towards this best practice. 

A joint  Commission/industry working  group  was created  in July  1996 to  undertake 
this benchmarking.  The working group decided  to concentrate  at first on the chemi 
cals industry as a whole and subsequently on the different  sectors of which it is made 
up, for example petrochemicals. 

Although  this benchmarking  does  not  concern  enterprises  directly,  a  distinction  can 
be made according to  enterprise  size. In this way,  specific  problems  posed  for  large 
firms  or SMEs can be examined  separately. 

In the same way, although benchmarking  of Community policies is not the  objective 
of the exercise in itself,  operational  proposals  concerning framework conditions can 
still be formulated. 

The working group is evaluating a limited number of indicators relating to the factors 
of competitiveness the most pertinent for the chemicals industry. Preference has been 
given to those indicators for which comparable data exists. Collection of data is diffi 
cult  because  of  statistical  confidentiality,  differing  definitions  of  various  parameters 
and lack of data on third countries. 

The  Netherlands  also  undertook  to  evaluate  the  competitiveness  of  the  European 
information  and  communications  technology  industry  by benchmarking  its  principal 
competitors. 

at the level of framework  conditions 

Benchmarking  framework  conditions  -  in  particular  factor  costs,  infrastructures, 
skills,  innovation,  the  environment  -  enables the  efficiency  of  public  policies  which 
affect  competitiveness to be  evaluated  and to  identify  the  steps required  to  improve 
them. Its main object  should be the evaluation  of those framework  conditions which 
directly affect  the competitiveness of European industry. 

Benchmarking  framework  conditions  relies  on  a  full  evaluation  of  industry's  com 
petitive situation  and a diagnostic of the principal areas to be examined.  In a second 
stage, it becomes the tool to address the areas of weakness  identified. 

If macro-economic  indicators which enable the tracking of the development  of com 
petitiveness  of the  economy  as  a whole  are readily  available,  the  same  does  not  go 
for  more  detailed  indicators  on  framework  conditions which  affect  competitiveness. 
Methodological difficulties  and the lack of accurate and comparable statistical indica 
tors are prevalent for  certain indicators which relate to areas that either have a direct 
quantifiable impact on competitiveness or that have an effect  on the long term. 

To  benchmark  framework  conditions  is a very  complex  exercise  because  it  can  be 
difficult  to isolate the effect  of a specific  policy from  the effect  of other  policies. To 
implement it with success, a number of principles can be applied such as: 

-  benchmark  the  outcomes  and the inputs (for  example the  share  in  sales of prod 

ucts introduced  over the previous three years and expenditure on R&D); 

- 6-

benchmark the causes not the symptoms (for example the  situation in the labour 
market not the rate of unemployment); 

benchmark the process as well as the performance (for example the capacity of a 
training system to deliver skills as well as the level of skills attained). 

Examples of benchmarking framework conditions 

The  Commission  has  undertaken  to  inventory  Member  States'  experience  with 
benchmarking framework conditions.  It has also  launched  a benchmarking exercise 
with the Member  States  in the framework of the Employment  and Labour Market 
Committee 

The  Dutch  Ministry  of  Economic  Affairs  recently  published  a  report  on 
"Benchmarking the Netherlands: Test of Dutch competitiveness", which examined 
different  approaches tc  benchmarking framework  conditions.  The  analysis covered 
such  areas  as  labour,  capital,  taxation,  education  and  infrastructure.  The  results 
identified  strengths of the Dutch economy, but also handicaps which prevented it to 
exploit its full potential. On this basis, the Dutch government has undertaken reforms 
to correct these handicaps. These corrections will be continued in 1997 on the basis 
of an update of the benchmarking exercise. 

j The OECD Industry Committee has set up a working group to  develop  criteria for 
benchmarking framework conditions. It has identified eight significant parameters for 
I industrial competitiveness covering: R&D infrastructure,  education and labour force, 
j corporate  governance,  labour  market  regulation,  labour  costs,  corporate taxation, 
( energy costs, telecommunications costs and infrastructures. 

3.  A  COMMUNITY FRAMEWORK 

If the initiative on benchmarking lies with all the actors of economic  life, the value 
added of the Community dimension is to ensure access to expertise with the capacity 
to develop and apply the most sophisticated methodologies,  to make use of experi 
ence and to pool knowledge held by the different national systems, whilst still playing 
a stimulating rôle with regard to Member States. 

It  is  what  the  Commission  intends  to  do  in  the  field  of framework conditions' 
benchmarking by the implementation of pilot projects. 

These pilot projects should permit a limited number of Member States to try out co 
operation on specific  areas which are of common interest tot he Community and to 
put in place mechanisms for co-operation and transparency along with the networks 
of know-how which will be required for future actions: 

-  each  Member  State  may  not  be  equally  interested  in  a  benchmarking  exercise. 
However, this should not be detrimental  either to those Member  States who are 
interested in such an exercise or to the efficiency  of the business environment for 
European enterprises as a whole.  This implies that the expertise and capacity for 
dialogue at Community level are made available to all those that are willing to un 
dertake such an exercise; 

-7 

- 

in the same way, each Member State does not necessarily have sufficient  capacity 
for  the  requisite  analysis  and  research  to  execute  benchmarking  in  a way that  it 
provides the appropriate elements of comparison and their interpretation  to guide 
the necessary political choices to improve framework conditions for enterprises. 

The  Commission  will  implement  a  number  of  pilot  projects,  selected  in  particular 
among the themes in annexe, where possible with a financial contribution within the 
limits of current budgetary resources. This implementation will be conducted in such 
a  way  that  a  working  procedure  is developed  ensuring  transparency,  dialogue  and 
expertise.  Other  benchmarking  exercises could  then  be undertaken  on  the basis  of 
this procedure,  in particular  in the fields of the weight  of regulation  on  SMEs, pro 
tection of intellectual property and innovation. ; 

- 

to the extent that this action is intended  to  improve the competitive  performance 
of the economic environment, all actors should be allowed to participate in setting 
out  the guidelines and priorities for  benchmarking. For this reason, the Commis 
sion will put  in place a  High  Level  Group  on  Benchmarking  composed  of in 
dustrialists,  representatives  of Chambers  of  Commerce,  trade  unions,  consumers 
and  the  civil  society.  The  Commission  will  ensure  that  the  composition  of  this 
group will reflect  the different  aspects of society,  and in particular  small and me 
dium  sized  enterprises,  which  suffer  the  most  from  rigidities  in  the  regulatory 
framework. This group will help the Commission to fix priorities for  benchmark 
ing,  organise  the  participation  of  industry  in  its  implementation,  cooperate  with 
the  Commission  for  the  interpretation  of  results  with  a  Community-wide  impact 
and transmit to industry those results which are its responsibility; 

-  Directors General for Industry will follow all work and ensure coherence in the 
political  approach  taken.  They  will  establish  case  by  case  the  degree  to  which 
Member  States participate in the individual projects  identified  by the High Level 
Group.  They  will  also  assist  the  Commission  in  exploiting  the  results  obtained 
from the different  benchmarking exercises; 

-  finally,  on  the basis of  the  inventory  of  experience  of benchmarking  in Member 
States, the Commission will invite those public and private research institutes with 
expertise in this field to form  a network of expertise in order to assist the imple 
mentation  of  benchmarking.  Respecting  the  rules  on  public  procurement,  this 
network will be invited to undertake benchmarking on the basis of terms of refer 
ence drawn up by the participants in and co-financiers  of a project.  As the imple 
mentation of pilot projects  progresses, this network  of expertise will be strength 
ened by establishing its visibility, credibility and therefore its autonomy. 

Results  will  be  communicated  to  all  Member  States,  Community  institutions  and 
other  interested  parties. They will provide input  to  regular  discussions  on  industrial 
competitiveness. In these debates, the Commission will make known its own position 
and the lessons that it will draw for itself from these results. 

This  working  method  should  also  allow  continuity  of  the  action.  Experience  will 
show whether continuity of the action can be based  on annual budgeting or whether 
a pluri-annual programme is required. 

ANNEXE 

ELIGIBLE THEMES FOR PILOT PROJECTS ON BENCHMARKING 

New technological  and organisational  paradigm 

The new technological  and organisational  paradigm driven by globalisation  and the 
introduction of new technologies poses a number of challenges for European indus 
try. In this context, benchmarking will cover mainly the diffusion  and use of new in 
formation  and  communication  technologies  by  enterprises.  This  exercise  will  be 
based either on existing data or on that of a new sample sun/ey of enterprises. 

Financing of innovation, in particular that of tnteUecfiscti property 

Financing  of  innovation  is  of  critical  importance  because  it  enables  the  results  of 
R.&D to be translated  into goods and services. Benchmarking in this area will be un 
dertaken  in close  co-operation  with  indusiry  and  other  economic  actors.  To  begin 
with, benchmarking should be based on a few major indicators such as access to  risk 
capital, its cost, quality, the cost of filing patents etc.. 

Logistics and transport 

Bearing  in mind the  rôle  of the European  Union  in world  trade and the peripheral 
situation  of  certain  Member  States,  logistics,  which  concerns  the  management  of 
flows of raw materials, information and products between  suppliers and clients, rep 
resents an essential factor for European competitiveness. The vast nature of this area 
means that it is be difficult to adopt a focused approach, which instead should be de 
veloped step by step. 

Development of human resources 

In the area of vocational  training,  benchmarking  of  qualifications  can contribute  to 
the  analysis  of  training  systems  and  thereby  improve  training  policy  and  business 
management. The pilot project will permit the evaluation of the approach adopted by 
certain  systems of vocational  training in industry,  including  both  implementation  of 
training in the enterprise  and the forecasting  of needs  in the  light  of economic and 
technological  change  .  The  pilot  project  will  concentrate  on  vocational  training in 
SMES. 

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ISSN 0254-1475 

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